Prior to starting the meeting
Senator McGaha announced that staff analyst Biff Baker had lost his wife and
asked the members and guests to pause for a moment of silence on behalf of the
Baker family. Senator McGaha then called to order the second meeting of the
Tobacco Settlement Agreement Fund Oversight Committee, a roll call was taken,
and a quorum established.

Senator McGaha asked Mr.
John-Mark Hack and Mr. Gene Royalty from the Governor’s Office of Agricultural
Policy (GOAP) to present their responses to the questions asked by various
committee members during the May meeting. Mr. Hack noted that his staff was
still working on the information that Representative Thomas had requested
regarding the amount of duplication and participation in model county programs
and would provide the data as soon as it was available. Mr. Hack provided
members with a list of how many applicants had been funded once and have
submitted one or more additional and separate funding requests. He stated that
as of the May 2003 Agricultural Development Board (ADB) meeting $107,000,000
had been approved for funding and $74,000,000 had actually been distributed to
recipients. He noted that the primary reason for the difference is related to
projects that opt not to receive their full award in a lump sum disbursement.
Mr. Hack stated that the ADB encourages recipients to only ‘draw down’ what
they need as they move forward with their projects so that the interest can
continue to accrue to the respective county accounts until such funds are
needed.

Senator McGaha asked Mr. Hack
if most of the duplicated projects were related. Mr. Hack said yes and
reviewed some of the relevant projects to explain how. Senator McGaha then
asked if the majority of the $107,000,000 that has been funded was county
funds. Mr. Hack noted that it was both county and state funds.

Mr. Hack provided members
with two lists, one illustrating the amount of state-requested dollars by
county and the other state-awarded dollars by county.

Representative Thomas asked
about the status of projects that have not been approved. Mr. Hack stated that
a number of them have been ‘no funded’ and the rest are in ‘pending’ status.
He noted that their ‘pending’ list totaled around thirty-seven applications.
Representative Thomas then asked which list do the ‘pending’ projects show up
on. Mr. Hack stated that they are accounted for on the list illustrating the
amount of state-requested dollars by county. Senator McGaha asked if the
‘pending’ projects’ information was separated out on that list. Mr. Hack said
no.

Mr. Hack then provided a
document which summarized the projects that have been approved by the ADB to
date and explained the contents of a second document that listed the
applications that were reviewed by the ADB during their May 2003 meeting. He
briefly reviewed the Bath County Agricultural Extension application and noted
that the ADB had received about eight other regional marketing projects. He
also noted that the project was funded based on the criteria delineated in a
marketing research study conducted by the University of Kentucky.

Senator Sanders asked how the
Bath County project was different from the Cave City regional marketing project
which had not been approved. Mr. Hack stated that the Bath County project
focused more on the actual marketing of farm products and the ADB viewed the
Cave City project as more of a exposition center and convention center
expansion with a farmers’ market component. He noted that the ADB was
specifically interested in how direct the marketing function was going to be
with regard to benefiting farmers’ in that marketing area.

Senator Sanders asked
Chairman McGaha if Mayor Bob Hunt, of Cave City, could present his rebuttal on
behalf of the Cave City project. The Mayor gave a brief history of the
project’s development and an overview of its status as it has moved through the
ADB application review process.

Senator Boswell asked Mr.
Hack if the ADB has a communication process that provides ‘no funded’
applicants with an explanation as to why they were denied funding and what
steps they would need to take in order to have a more successful application.
Mr. Hack said that they try to be as clear as possible in explaining the
reasons for no funding. He also stated that staff works with applicants to
address the reasons for no funding as resources permit. He noted that there
have been a few projects that were originally denied funding, then reworked and
retooled and subsequently funded.

Senator Pendleton asked Mayor
Hunt what the primary goal of the Cave City project was. Mayor Hunt stated
that they wanted to construct an arena/agri type facility that local farmers
could use for shows and sales. Senator Pendleton then asked Mr. Hack why the
ADB did not look favorably on such projects. Mr. Hack said that the direct
connection to farm income was not apparent to staff or the ADB, especially
within the context of the number of dollars being requested for the project.
Senator Sanders informed the committee members that the Cave City project was
actually mentioned in the federal farm bill although specific funds have yet to
be allocated. Co-Chairs McGaha and Thomas thanked Mayor Hunt for speaking to
the committee and applauded the work that had been done thus far.

Senator Boswell asked Mr.
Hack if the ADB takes into consideration the county’s level of tobacco
dependence when reviewing applications. Mr. Hack said yes, however the
location of a project doesn’t always determine the potential impact on tobacco
dependent counties. He noted the Kentucky Specialty Meats project in Caldwell
county and the Little Kentucky Smokehouse project in Union county as examples.
Senator McGaha also expressed concern about the apparent lack of approved
projects in the major tobacco dependent counties.

Senator Kelly asked Mr. Hack
whether or not the ADB had funded a worm project. Mr. Hack stated that the ADB
had not funded any worm farming projects to date. He noted however that the
ADB had cost-shared on a market research study, with the Southern Kentucky Worm
Growers Association, focusing on the potential of vermiculture products. He gave
a brief overview of the study’s findings.

Senator McGaha asked about
the Scott County Beef Improvement Association’s project. He asked if the
estimated 150 families to benefit from the expansion were new families who
previously had not been able to participate prior to the expansion. Mr. Hack
stated that he did not know the answer, however he said the project does expand
their capacity to service other families. Therefore the project creates an
opportunity for people to benefit from the heifer replacement sales who had not
benefited before.

Representative McKee asked if
the volume of applications submitted had increased, decreased, or leveled off
since the inception of the program. Mr. Hack stated that on the non-model
projects were leveling out but that more innovative proposals were now being
presented. Representative McKee asked if the ADB had considered any options
for getting the Phase I money out to the more tobacco dependent counties. Mr.
Hack stated that the ADB was interested in extending some low-cost capital in
those counties where applicants are finding it difficult to meet the
requirement on the model cost-share programs.

Senator McGaha asked how the
forgivable loan worked regarding the Kentucky Specialty Meats project. Mr.
Hack said that the applicant will pay a premium to Kentucky goat producers over
the current market rate set at Saint Angelo, Texas and that price difference
will be assessed against the loan. Senator McGaha also asked how the two
hundred thousand dollar low-cost loan worked. Mr. Bratcher said that the ADB
worked with the applicant’s bank to buy down a portion of their loan and the
bank will actually be secured with a first lien on all assets. Senator McGaha
asked Mr. Bratcher to clarify if a local bank was involved and if the ADB was
the entity buying down the loan. Mr. Bratcher confirmed both to be the case,
however he noted that though the ADB is able to generate the loan, the ADB is
not sure that it is the appropriate entity that should be doing this,
particularly in terms of servicing. He also stated that it was the opinion of
the ADB that this type of activity should be assigned to the Agricultural
Finance Corporation when that entity gets up and going.

Senator Boswell asked what
banks charge to service the loan. Mr. Bratcher stated that it would be a
prorata share of the proceeds of sales based upon the outstanding balances at
the time on each of the loans.

Representative Thomas asked
if staff review applications that have received a ‘low-priority’ ranking from
their perspective county council. Mr. Hack stated yes, however the application
does not receive as much attention as one that had received a ‘high-priority’
ranking. Representative Thomas then asked if there have been any applications
that have received a ‘low-priority’ ranking in which the staff felt that it had
more merit. Mr. Hack stated that this had not occurred to his knowledge.

Senator Boswell asked if
there were mechanisms for multi-county projects and if so, how many had been
approved. Mr. Hack stated that there have been several applications that have
included multiple county funding and he could provide that information at the
next meeting.

Senator Kelly asked for a
status report on the Kentucky Center for Agricultural Development and Entrepreneurship.
Mr. Hack stated that they have a resource center and staff dedicated to its
mission. He also noted that he could provide the committee with another copy
of the status and activity sheet he provided during the May 2003 meeting.
Representative McGaha noted to the committee that they would dedicate a portion
of a future meeting to this subject.

Both Chairpersons McGaha and
Thomas noted that Mr. Hack was leaving his position with GOAP and thanked him
for his work and commitment to rural Kentucky. Mr. Hack expressed his
appreciation for both Chair’s acknowledgement and gave his view as to why the
program has been so successful.

Mr. Gene Royalty asked for
permission to give a brief presentation on their proposal for the Kentucky
Agricultural Finance Corporation. He was asked to wait to make his
presentation after the other scheduled presenters if time permitted.

Mr. Perry Nutt, Staff
Economist for the Legislative Research Commission (LRC), gave a presentation
regarding the process and formula for the allocation of tobacco settlement
money to the county accounts. Mr. Nutt gave a brief overview of KRS 248.703
(3) and stated that the formula was made up of three variables weighted. He
also provided two tables illustrating county rankings via the formula
variables.

Representative Thomas asked
which variable receives fifty percent of the weighted average. Mr. Nutt stated
that the county burley basic quota as a percentage of state burley quota
variable received the fifty percent weighted average. Representative Thomas
asked if counties had shifted in their ranking. Mr. Nutt stated yes but by no
more than .04% either way. He noted that he could provide the committee with a
list. Representative Thomas asked if there was a better formula to use in
determining such allocations. Mr. Nutt stated that it was widely agreed that
the formula currently being used was the standard measure in use for such
allocations.

Mr. Roger Recktenwald, with
the Kentucky Infrastructure Authority (KIA), gave a progress report on the use
of tobacco settlement money for tobacco county water projects and explained the
planning and funding process for all projects. He provided information and
data tables on both the first year, and second year funding allocations and a status
of various projects.

Representative Thomas asked
if KIA could provide the committee with a map of Kentucky segregated by county
illustrating funding dollars of both funding years. Mr. Recktenwald stated
that he has such a map and would work with the committee’s staff to develop it
for the committee’s use. Representative McKee asked that counties not
receiving funding be illustrated as well. Mr. Recktenwald agreed.

Senator Kelly expressed his
concern about how funds were appropriated in the first round of funding for the
water projects, and noted that some less-than tobacco dependent counties had
received a good deal of funding. Senator Kelly further stated that this may
have been due to their willingness to participate in KIA’s water project planning
process. He also thanked Mr. Recktenwald for all of his hard work and noted
his high level of competence in strategic planning. He then urged members of
the committee to communicate to their constituents the importance of getting
involved in the water planning process for projects in their counties. Mr.
Recktenwald expressed his appreciation for the Senator’s acknowledgement and
gave his view as to why the programs have been so successful.

Senator Kelly asked if the
utility companies felt that the effort has been worth it and if so, whether
they continue to take it seriously. Mr. Recktenwald stated that the utility
companies have bought in to the process and do appreciate the value of the
effort, particularly with regard to the ability to collect and access
statistically significant data relevant to their work.

The Co-Chairs, decided to
delay the presentation by Mr. Royalty and Mr. Bratcher to a later date and
asked for a copy of the proposal to be sent to the committee prior to such
date.

A motion was made and
seconded to approve the May 2003 meeting minutes. The motion passed.